UK's £350m coal subsidies clash with Government's phase-out pledges

The UK is providing £356m annually in coal subsidies, despite the UK Government denying that it provides financial support for fossil fuels, a new report has claimed.

Overall, the 10 nations have provided £5.3bn annually between 2005 to 2016 on coal subsidies

The Overseas Development Institute (ODI) reviewed subsidies to fossil fuels in 10 countries accountable for 84% of Europe’s energy-related greenhouse gas emissions. When compared to France, the Czech Republic, Germany, Greece, Italy, Hungary, the Netherlands, Poland and Spain, the UK is the only nation to score “very poorly” for its transparency of coal subsidiary reporting.

The report claimed that the UK is providing annual £356m subsidiaries to the industry, as documented by the OECD and International Monetary Fund (IMF). However, the report claims that the UK Government “explicitly denies” that these payments exist.

“These subsidies to coal risk encouraging asset sweating, a strategy where coal plant operators delay shutting down their coal plants so they can continue to benefit from coal subsidies,” the report notes.

“This delays the shutdown of coal plants and discourages both investment in low-carbon and more flexible capacity. Coal subsidies also undermine the carbon price support measure as well as broader market developments that render coal increasingly uneconomic.”

As part of the G20, the UK has repeated calls that it is committed to phasing-out fossil fuel subsidies every year since 2009. Last year, as part of the G7, the UK backed calls that all countries should end fossil subsidies by 2025.

Since 2014, the UK has been funnelling “capacity payments” to subsidise coal as part of an objective of avoiding blackouts. According to the report, the first four capacity market auctions have created subsidy contracts worth £453m for seven coal plants between 2017 and 2021.

The annual capacity markets have received criticism that they overestimate supply needs and favour fossil fuels over low-carbon technologies. The report highlights concerns that these markets delay coal-plant decommissioning, which the UK has agreed to phase-out by 2025.

Between 2010 and 2016, subsidies have supported 13,100MW of operating coal-fired plant capacity, although the Government has cancelled 16,298MW of scheduled capacity. The UK was the lowest ranked nation in the report for its progress on phasing out subsidies on coal mining.

Imperfect 10

Overall, the 10 nations have provided £5.3bn annually between 2005 to 2016 on coal subsidies. Six of these nations have introduced new subsidy schemes to support the sector since 2015, the year of the Paris Agreement.

Only 14% of the subsidies are helping workers and communities to transition away from coal mining, and several subsidies aimed at supporting the energy transition via the Emissions Trading System and biomass conversions are going to coal operations.